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November 16, 2008

How Yahoo Lost its Way

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Amazon Web Services

With Yahoo’s stock hovering at $10 (compared to the $35 a share price offered by Microsoft), it can only be a matter of time now before the shareholders shake up the board of directors and  makes another exit as Yahoo’s CEO.

So what ultimately lead to Yahoo’s fall from grace? After all it was only about 3 years ago that Google and Yahoo had at least a comparable share of the search market (~30% for Yahoo and ~35% for Google) and their revenue was at least in the same ballpark as Google’s (5.2 Billion vs. 6.1 Billion).

  1. Poor focus/trying to do it all

    Where Google first focused on search and kept working on it until they were clearly the winner, Yahoo dabbled in everything. They became a complex content portal with massive amounts of content they had to keep current. I have never really dived into the makeup of their workforce but they had to have a ton of staff dedicated to customer service and content management. When you compare that to a lean business model like delivering search results and selling pay-per-click ad space there’s no comparison. Of course since the cash started rolling in Google has diversified by creating compelling software offerings such as Google Maps, Gmail, and Google Docs but despite the intense development requirement they don’t require massive manpower to continue delivering the content.

  2. Too Complicated

    The #1 driver of revenue for Google (in fact almost their entire revenue) is AdWords. When Yahoo was still floundering around with the Overture platform Google delivered a simple easy to use console for creating and tracking PPC ads. As the ultimate show of flattery for Google’s (and possibly more so their traffic) platform Yahoo recently announced a partnership with Google to display Adwords on Yahoo sites. This deal was of course was ultimately backed out of by Google due to potentially lengthy anti-trust problems.

The mistake of trying to do it all was probably ultimately the most costly. Where Google’s strategy assumed correctly that the web would generate enough of its own content, Yahoo felt a mandate to develop and deliver content on its own. Google it seems, will only develop a new add-on if it feels it can provide something new and innovative that requires only software and hardware to succeed. Google maps is a bit different but because something like “street view” is so groundbreaking I think they make an exception when they can gain a competitive advantage by being first and being so large that others are unlikely to follow.

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Amazon Web Services

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